Rider JoAnna Karem take short trip in San Francisco, Ca. on Saturday Nov. 17, 2012, with driver Eric Janson of the web-based car service SideCar. Web-based ride sharing programs are coming under fire with regulators over licensing. less

Rider JoAnna Karem take short trip in San Francisco, Ca. on Saturday Nov. 17, 2012, with driver Eric Janson of the web-based car service SideCar. Web-based ride sharing programs are coming under fire with ... more

Community driver Joy Anderson picks up rider David rust for a quick trip in San Francisco, Ca. on Saturday Nov. 17, 2012, for the web-based ride service Lyft. Web-based ride sharing programs are coming under fire with regulators over licensing. less

Community driver Joy Anderson picks up rider David rust for a quick trip in San Francisco, Ca. on Saturday Nov. 17, 2012, for the web-based ride service Lyft. Web-based ride sharing programs are coming under ... more

Photo: Michael Macor, The Chronicle

Ride-share services run into fines, suit

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The latest battle pitting disruptive high-tech innovators against old-school industries and regulators has hit the streets of San Francisco, where local ride-sharing services find themselves facing hefty fines and a class-action lawsuit.

Tech firms Uber, SideCar and Zimride say they are ready to go to the mat to prove current rules governing transportation services are outmoded, and that what they offer consumers is beneficial to society. And their supporters are lining up behind them.

"I absolutely love Uber," said Jean Templin, a San Francisco resident who used the service to get to the airport Friday. "If these services are being used, people must want them. As a woman, I have no problem paying more for a safe ride home. I would hate to see this service be shut off and have to ride in unsafe cabs."

Countering that view are state regulators who say the law is the law, especially because public safety is involved, as well as cab drivers, who follow all the rules yet still find their livelihoods threatened.

"I feel like they're taking money out of my pocket after I put in all these years into this industry," said Edwin Santiago, who has driven cabs or town cars in the city for 33 years. "At my age, it's making things pretty difficult."

$20,000 fines issued

The state Public Utilities Commission last week fined each of the companies $20,000, saying they are operating illegally and in violation of previously issued "cease-and-desist" orders. The PUC says the ride services haven't obtained the proper permits to run their businesses, which give consumers the power to quickly arrange rides "on demand" through apps on their smartphones.

Uber, SideCar and Zimride's mobile app service, called Lyft, are appealing the fines and vow to continue operating. So does Tickengo, a Daly City company that is also under a cease-and-desist order and could, according to a PUC attorney, be next in line for a fine.

The firms are taking on one of the most heavily regulated of industries, yet they may have recent history on their side.

One only has to look at how consumer-driven, peer-to-peer file-sharing technology disrupted the once powerful recording industry, despite fierce legal battles over copyright laws that were costly to both sides. Technology has also disrupted retail shopping, the postal system, news media, the travel industry, advertising and governments.

The PUC said more fines could be levied if the companies continue to defy the order. But the startups are backed by millions of dollars in venture capital investments and have armed themselves with key legal help: Zimride has a former PUC administrative law judge on its legal team; Tickengo's new attorney is former San Francisco mayor and state Assembly Speaker Willie Brown.

Uber, SideCar and Zimride believe their companies are gaining support from a new generation of consumers who believe in this new kind of peer-to-peer ride sharing.

"Technology is going to keep moving forward; the genie is out of the bottle, and there's no putting it back in," said Sunil Paul, chief executive officer and founder of San Francisco's SideCar, which has arranged about 50,000 rides since launching in beta mode in February. The company recently launched in test mode in Seattle.

"This is not just about SideCar," Paul said. "It goes beyond ridesharing and transportation."

Permit forms outdated

Zimride's Lyft, best known for adorning its cars with huge mustaches, and SideCar both use apps to match people who need a ride with drivers who want to make a little extra cash with their private vehicles.

Each say they are simply using smartphones, location tracking and the Internet to add a new public transportation option that will help the environment.

"The frustrating part is that we just want to keep solving the problem of having 80 percent of those cars' seats empty," said John Zimmer, co-founder of Zimride, which started in 2007 by arranging for long-distance rides for college students.

Zimmer said the PUC's outdated permit application forms require a list of company drivers and vehicles. But he said Lyft doesn't employ drivers or own the vehicles.

Uber Chief Executive Officer Travis Kalanick said his company is "fundamentally different" than SideCar and Lyft, "which do not have any providers properly licensed with the PUC."

Uber, which last week was also hit with a class-action lawsuit filed on behalf of two San Francisco cab drivers, matches ride-seekers with licensed "black car" limo and town car drivers and participating taxi drivers.

Regulated service

"The question from the PUC with regards to Uber is only whether Uber should be licensed as well, double-regulating us on top of our already regulated transportation partners," Kalanick said in an e-mail.

"Our contention is that it if you read the regulations, such a notion doesn't make sense. Are we supposed to give drivers a second drug and alcohol test? Are we supposed to have cars inspected by the DMV a second time after they've already inspected our partners' vehicles?" he said.

PUC General Counsel Frank Lindh said the existing rules clearly show the answer is yes.

"It's the same old wine in a new bottle," Lindh said. "They're basically providing transportation for a human being, for hire, and that's a regulated service. The fact that they're using apps and GPS doesn't alter the underlying service."

Rules exist for reason

Lindh said the PUC isn't trying to stifle innovation, but "the rules are there to provide some assurance that accidents won't happen in the first place because the drivers are legitimate and the vehicles will be inspected," he said.

Lindh also said the companies have not provided enough proof of insurance. "They say lots of things, they assert lots of things, they say, 'Don't worry about this, we got this covered,' " he said. "We're the PUC. We can't just look the other way. We can't just take their word."

But each company has said it does provide insurance and does background checks on drivers and passengers. Zimmer insisted that he once sat across a table from Lindh and showed him documents proving Zimride's $1 million accident insurance policy.

Cabbies say it's unfair

SideCar's Paul, a onetime congressional policy analyst, said the issue might eventually work its way up to the governor's office, which oversees the commission.

"The PUC has an existing set of rules that were written for an era when communication technology was literally just a landline telephone, and they're trying to shoehorn them into this new world," he said.

SideCar is also using social media to drive support of an online petition to the PUC. Within 24 hours, the petition at Change.org had more than 5,000 signatures.

"Change always threatens incumbents," wrote Tim O'Reilly, a Sebastopol business owner. "But some incumbents find ways to get government on their side and try to restrict competition."

But Thomas Eng said that kind of change is not fair to cab drivers like himself who have played by the rules, go through training to maintain a taxi license and must have their vehicles inspected regularly.

"Every time I see a town car or a mustached car pick up a passenger in front of me illegally, I know they're taking money out of my pocket and end up hurting my whole family," Eng said in an e-mail.

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